<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-KSB/A
AMENDMENT NO. 1
(MARK ONE)
<TABLE>
<C> <S>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2000 OR
</TABLE>
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
</TABLE>
COMMISSION FILE NUMBER 0-23835
HOMESEEKERS.COM, INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
NEVADA 87-0397464
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6490 S. MCCARRAN BLVD., SUITE D-28 89509
RENO, NEVADA (Zip code)
(Address of principal executive
offices)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (775) 827-6886
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $.001
PAR VALUE
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
State issuer's revenues for its most recent fiscal year: $11,090,000
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past
60 days: $13,142,718 (based on the average bid and asked prices of the common
stock on the Nasdaq SmallCap Market on October 25, 2000.
As of October 25, 2000, the number of outstanding shares of common stock,
par value $.001 per share, of HomeSeekers.com, Incorporated. was 23,603,938.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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<PAGE>
This Form 10-KSB/A is being filed for the purposes of filing the information
called for in Part III of Form 10-KSB. The registrant also hereby amends certain
information contained in Note 3 and Note 9 of the Notes to Consolidated
Financial Statements, which appear on pages F-15 and F-22, respectively, of the
Form 10-KSB for the fiscal year ended June 30, 2000 of HomeSeekers.com,
Incorporated (the "Company") as originally filed on October 6, 2000. The Company
is filing amended and restated financial statements and supplementary data
required by Form 10-KSB and Regulation S-X commencing on page F-1 hereof.
PART II
ITEM 7. FINANCIAL STATEMENTS.
The consolidated financial statements filed with this Form 10-KSB/A appear
herein commencing on page F-1.
PART III
ITEM 9.DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
Our board of directors is divided into two classes. The directors in each
class hold office for a term of two years. The Class I directors hold office
until the Annual Meeting of Stockholders to be held following the fiscal year
ending June 30, 2001 or until their successors are duly elected and qualified.
The Class II directors will hold office until our Annual Meeting of Stockholders
to be held in December 2000 or until their successors are duly elected and
qualified.
The following sets forth, as of September 30, 2000, the name, age and
principal position(s) with the Company of each of our executive officers and
directors.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL POSITION(S) CLASS
---- -------- --------------------- --------
<S> <C> <C> <C>
Gregory L. Costley..................... 47 Chairman of the Board of Directors, Chief II
Executive Officer, Secretary and Treasurer
Dennis Gauger.......................... 48 Chief Financial Officer --
John Giaimo............................ 46 President, Chief Operating Officer and I
Director
Greg Johnson........................... 48 Chief Technology Officer and Director I
Douglas F. Swanson..................... 57 Executive Vice President --
David Holmes........................... 45 Director II
Bradley N. Rotter...................... 45 Director II
</TABLE>
GREGORY L. COSTLEY joined the Company as Chairman of the Board, Chief
Executive Officer, Secretary and Treasurer in August 1999. Mr. Costley was
previously employed for eleven years by the Dole Food Company, Inc. ("Dole"), an
international producer and marketer of food and related products. From
September 1996 until August 1999, he served as President of Dole's North
American Fruit Operations group. Mr. Costley is Mr. Swanson's brother-in-law.
DENNIS P. GAUGER has served as our Chief Financial Officer since
October 2000 and is responsible for accounting, financial planning and reporting
under the federal securities laws. From May 2000 until October 2000, Mr. Gauger
served on a part-time, interim basis as our Chief Financial Officer. From
May 1998 until October 2000, Mr. Gauger operated an independent consulting
practice providing executive financial management services, including interim or
part-time chief financial officer assignments. From 1977 until May 1998,
Mr. Gauger was employed in three offices of the international
2
<PAGE>
accounting firm, Deloitte & Touche LLP, including nine years as an accounting
and auditing partner. Mr. Gauger is a licensed Certified Public Accountant in
the states of Nevada and Utah.
JOHN GIAIMO has served as President and Chief Operating Officer and a
Director since August 1996. He was the President and Chief Executive Officer of
Visual Listings, Inc., an Internet real estate content provider, from July 1990
until its acquisition by HomeSeekers.com, in May 1996. Mr. Giaimo filed for
personal bankruptcy under Chapter 7 of the U.S. Bankruptcy Code that became
final in September 1996 and involved three computer stores where he was the sole
proprietor.
GREG JOHNSON currently serves as Chief Technology Officer. Mr. Johnson
founded the Company, and has served as a Director since 1988. He served as
Chairman of the Board from August 1996 until August 1999, Chief Executive
Officer from September 1996 until August 1999 and President from 1988 until
August 1996. He has been involved in all phases of the Company's management.
Mr. Johnson is a licensed real estate broker/agent in Nevada and has extensive
experience in marketing and selling real estate.
DOUGLAS F. SWANSON has served as Executive Vice President of the Company
since October 1995 and is responsible for investor relations and mergers and
acquisitions. He was also a member of our Board of Directors from 1995 until
June 2000. From September 1990 until October 1995, Mr. Swanson served as
Chairman of Remington-Fox, Inc., a company he formed that was engaged in the
business of medical transcribing. Remington-Fox Inc. filed for bankruptcy
protection under Chapter 11 of the U.S. Bankruptcy Code in June 1996 and is no
longer in operation. Because of personal guarantees associated with
Remington-Fox, Mr. Swanson filed for personal bankruptcy protection under
Chapter 13 of the U.S. Bankruptcy Code in June 1996. Mr. Swanson is
Mr. Costley's brother-in-law.
DAVID HOLMES has served as a director of HomeSeekers.com since March 1999.
Mr. Holmes currently serves as President and Chief Executive Officer of Adagio
Trust, a manager of taxable individual and trust assets. He served as Vice
President and Portfolio Manager of Whittier Trust Company of Nevada Inc. from
1995 until October 1999. From 1990 until 1994, Mr. Holmes managed assets for
high net worth individuals for Morgan Stanley & Co. Incorporated, a diversified
financial services company.
BRADLEY N. ROTTER has served as a director of HomeSeekers.com since
March 1999. Since 1992, Mr. Rotter has served as Chairman of the Board of Point
West Capital Corporation ("Point West"), a specialty financial services company.
Mr. Rotter is also the managing member of The Echelon Group of Companies, LLC,
which provides investment and financial services. He was the principal
shareholder of The Echelon Group Inc., a financial services company that was
merged into Point West in 1995, and served as Chairman of the Board of that
company from 1988 until the merger with Point West.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors and holders of ten percent or more of the
outstanding Common Stock (collectively, "Reporting Persons") to file an initial
report of ownership (Form 3) and reports of changes of ownership (Forms 4 and
5) of Common Stock with the SEC. Such persons are required to furnish the
Company with copies of all Section 16(a) reports that they file. Based solely
upon a review of Section 16(a) reports furnished to the Company for fiscal 2000
and written representations from Reporting Persons that no other reports were
required, the Company believes that all the Reporting Persons complied with all
applicable filing requirements during fiscal 2000.
3
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides information relating to compensation for the
fiscal years ended June 30, 2000, 1999 and 1998 for the Company's chief
executive officer and the other most highly compensated executive officers of
the Company whose total salary and bonus (as determined pursuant to Securities
and Exchange Commission ("SEC") rules) exceeded $100,000 (determined by
reference to fiscal 2000) (collectively, the "Named Executive Officers"). The
amounts shown include compensation for services in all capacities provided to
the Company.
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION AWARDS
------------------- ------------------------------
SECURITIES
SALARY BONUS RESTRICTED STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($) AWARDS ($) OPTIONS (#) COMPENSATION ($)
--------------------------- -------- -------- -------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Gregory L. Costley............. 2000(2) 163,096 -- -- 402,000(3) --
Chairman, Chief Executive
Officer, Secretary and
Treasurer
John Giaimo.................... 2000 144,000 -- -- 205,658(4) --
President and Chief Operating 1999 174,047 -- -- 204,000(5) --
Officer 1998 141,546 -- -- -- --
Greg Johnson................... 2000 150,600 -- -- 308,004(6) --
Chief Technology Officer 1999 177,047 -- -- 204,000(5) --
1998 141,546 -- -- -- --
Douglas F. Swanson............. 2000 150,600 -- -- 353,324(7) --
Executive Vice President 1999 174,047 -- -- 571,000(8) --
1998 91,503 -- -- -- --
</TABLE>
------------------------
(1) This amount includes a monthly automobile allowance of $600 for each officer
other than Mr. Giaimo.
(2) Mr. Costley became an employee of the Company on August 23, 1999; therefore,
no information is presented for the fiscal years ended June 30, 1999 or
1998.
(3) Effective August 23, 1999, Mr. Costley received stock options to purchase
300,000 shares of Common Stock at an exercise price of $7.94 per share.
These options vest and become exercisable to the extent of one-third of the
shares covered thereby on the date of grant and the next two anniversaries
of the date of grant. Effective August 23, 1999, Mr. Costley received stock
options to purchase 1,500 shares of Common Stock at an exercise price of
$7.94. These options vest and become exercisable quarterly over a three-year
period beginning on the date of grant. Effective May 31, 2000, Mr. Costley
received stock options to purchase 100,500 shares of Common Stock at an
exercise price of $2.81 per share. These options vest and become exercisable
in full on November 30, 2000.
(4) Effective May 24, 2000, Mr. Giaimo received stock options to purchase 1,500
shares of Common Stock at an exercise price of $2.81 per share. These
options vest and become exercisable quarterly over a three-year period
beginning on the date of grant. Effective May 31, 2000, Mr. Giaimo received
204,158 shares of Common Stock at an exercise price of $2.81 per share.
These options vest and become exercisable in full on November 30, 2000.
4
<PAGE>
(5) Effective September 25, 1998, Mr. Giaimo and Mr. Johnson each received stock
options to purchase 100,000 shares of Common Stock at an exercise price of
$2.38 per share. These options vested and became exercisable immediately on
the date of grant. Effective May 5, 1999, Mr. Giaimo and Mr. Johnson each
received stock options to purchase 4,000 shares of Common Stock at an
exercise price of $8.81 per share. These options vest and become exercisable
quarterly over a three-year period beginning on the date of grant. Effective
June 23, 1999, Mr. Giaimo and Mr. Johnson each received stock options to
purchase 100,000 shares of Common Stock at an exercise price of $5.31 per
share. These options vested and became exercisable immediately on the date
of grant.
(6) Effective May 24, 2000, Mr. Johnson received stock options to purchase 1,500
shares of Common Stock at an exercise price of $2.81 per share. These
options vest and become exercisable quarterly over a three-year period
beginning on the date of grant. Effective May 31, 2000, Mr. Johnson received
stock options to purchase 306,504 shares of Common Stock at an exercise
price of $2.81 per share. These options vest and become exercisable in full
on November 30, 2000.
(7) Effective May 24, 2000, Mr. Swanson received stock options to purchase 1,500
shares of Common Stock at an exercise price of $2.81 per share. These
options vest and become exercisable quarterly over a three-year period
beginning on the date of grant. Effective May 31, 2000, Mr. Swanson received
351,824 shares of Common Stock at an exercise price of $2.81 per share.
These options vest and become exercisable in full on November 30, 2000.
(8) Effective August 20, 1998, Mr. Swanson received stock options to purchase
167,000 shares of Common Stock at an exercise price of $1.47 per share.
These options vested and became exercisable immediately on the date of
grant. Effective September 25, 1998, Mr. Swanson received stock options to
purchase 300,000 shares of Common Stock at an exercise price of $2.38 per
share. These options vested and became exercisable immediately on the date
of grant. Effective May 5, 1999, Mr. Swanson received stock options to
purchase 4,000 shares of Common Stock at an exercise price of $8.81 per
share These options vest and become exercisable quarterly over a three-year
period beginning on the date of grant. Effective June 23, 1999, Mr. Swanson
received stock options to purchase 100,000 shares of Common Stock at an
exercise price of $5.31 per share. These options vested and became
exercisable immediately on the date of grant.
SUBSEQUENT TO FISCAL YEAR-END
Effective August 4, 2000, Mr. Costley received stock options to purchase
200,000 shares of Common Stock at an exercise price of $2.03 per share. These
options (a) vested and became exercisable (1) to the extent of one-third of the
shares covered thereby immediately on the date of grant and (2) to the extent of
one-third of the shares covered thereby on August 23, 2000 and (b) vest and
become exercisable to the extent of the remaining one-third of the shares
covered thereby on August 23, 2001.
Effective August 4, 2000, Messrs. Giaimo, Johnson and Swanson each received
stock options to purchase 133,334 shares of Common Stock at an exercise price of
$2.03 per share. These options vested and became exercisable immediately on the
date of grant.
Effective August 4, 2000, Messrs. Rotter and Holmes each received warrants
to purchase 100,000 shares of Common Stock at an exercise price of $2.03 per
share. These warrants (a) vested and became exercisable to the extent of
two-thirds of the shares covered thereby immediately on the date of grant and
(b) vest and become exercisable to the extent of the remaining one-third of the
shares covered thereby on March 15, 2001.
5
<PAGE>
On October 9, 2000, Dennis P. Gauger received stock options to purchase
100,000 shares of Common Stock at an exercise price of $.625 per share. These
options vested and became exercisable immediately on the date of grant.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
The table below provides information regarding stock options granted to the
Named Executive Officers during the fiscal year ended June 30, 2000. No SARs
were granted by the Company during fiscal 2000.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE OR
UNDERLYING GRANTED TO BASE PRICE
OPTIONS/SARS EMPLOYEES IN (PER SHARE) EXPIRATION
GRANTED (#) FISCAL YEAR (%) ($) DATE (1)
------------ ---------------- ----------- -------------------------
<S> <C> <C> <C> <C>
Gregory L. Costley........................ 300,000 7.0 7.94 8/23/02-8/23/04
1,500 * 7.94 11/23/02-8/23/05
100,500 2.3 2.81 11/30/03
John Giaimo............................... 1,500 * 2.81 8/24/03-5/24/06
204,158 4.7 2.81 11/30/03
Greg Johnson.............................. 1,500 * 2.81 8/24/03-5/24/06
306,504 7.1 2.81 11/30/03
Douglas F. Swanson........................ 1,500 * 2.81 8/24/03-5/24/06
351,824 8.2 2.81 11/30/03
</TABLE>
------------------------
* Less than 1%.
(1) Columns (f), (g) and (h) have been omitted in reliance on Item
402(a)(1)(i) of Regulation S-K.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION/SAR VALUES
The following table sets forth information with respect to the exercise of
options to purchase shares of Common Stock during the fiscal year ended
June 30, 2000 by each person named in the Summary Compensation table and the
unexercised options held as of June 30, 2000. None of the Named Executive
Officers held or holds SARs.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AT OPTIONS/SARS AT
ACQUIRED ON VALUE REALIZED FISCAL YEAR-END (#) FISCAL YEAR-END ($)
EXERCISE (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE (1)
------------ -------------- ------------------------- -----------------------------
<S> <C> <C> <C> <C>
Gregory L. Costley...... -- -- 100,375 / 301,625 --/ 22,110
John Giaimo............. 60,109 88,360 608,306 / 208,325 699,878/ 45,245
Greg Johnson............ 60,000 88,200 855,345 / 310,671 1,085,259/ 67,761
Douglas F. Swanson...... 259,057 380,814 1,051,306 / 355,991 1,208,958/ 77,731
</TABLE>
------------------------
(1) Value is calculated by multiplying the number of shares of Common Stock
underlying the stock option by the difference between the closing price of a
share of Common Stock on June 30, 2000 on The Nasdaq SmallCap Stock Market
($3.03 per share) and the exercise price of the stock option.
6
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LONG-TERM INCENTIVE PLAN AWARDS
Not applicable.
DEFINED BENEFIT OR ACTUARIAL PLAN DISCLOSURE
Not applicable.
COMPENSATION OF DIRECTORS
Directors are entitled to reimbursement for reasonable travel and other
out-of-pocket expenses incurred in connection with attendance at Board of
Director's meetings, but receive no set fees or benefits as directors. An
independent director may receive warrants upon acceptance of the position as a
director. Mr. Rotter and Mr. Holmes were each granted a warrant to purchase
150,000 shares of Common Stock upon becoming directors on March 15, 1999.
One-third of the warrants vested and became exercisable immediately, one-third
of the warrants vested and became exercisable on March 15, 2000 and the
remaining one-third of the warrants vest and become exercisable on March 15,
2001. The exercise price for the warrants is $4.00 per share, which was the fair
market value of the Common Stock on March 15, 1999. Effective May 31, 2000,
Messrs. Rotter and Holmes were each granted a warrant to purchase 16,667 shares
of Common Stock at an exercise price of $2.81 per share, which was the fair
market value of the Common Stock on May 31, 2000. Effective August 4, 2000,
Messrs. Rotter and Holmes were each granted a warrant to purchase
100,000 shares of Common Stock at an exercise price of $2.03 per share, which
was the fair market value of the Common Stock on August 4, 2000. These warrants
all vested and became exercisable on the date of grant, and expire three years
from the date of grant.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Gregory L. Costley
that became effective on August 23, 1999 for a term ending on August 22, 2002.
The agreement provides that Mr. Costley will serve as the Chief Executive
Officer and will be nominated for election as the Chairman of the Board of
Directors during the term of the agreement. Under his agreement, Mr. Costley is
entitled to:
- a base salary of $200,000 per year;
- bonus payments as the Board of Directors may see fit;
- a grant of an option to purchase 300,000 shares of common stock at an
exercise price per share equal to the closing bid price for the Common
Stock on the date that Mr. Costley's agreement became effective ($7.94),
which vested and became exercisable to the extent of one-third of the
shares covered as of the date of the agreement and to the extent of an
additional one-third of the shares covered thereby as of August 23, 2000
and vests and becomes exercisable to the extent of the remaining one-third
of the shares covered thereby on August 23, 2001, except that the option
will vest immediately upon an involuntary termination or a
"change-in-control," which term has the same definition as under the
employment agreements for Messrs. Swanson, Johnson and Giaimo;
- an additional option to purchase 100,000 shares of common stock (to be
priced at $17.94, $27.94 etc.) for every $10 increase in stock price from
the closing bid price on the date Mr. Costley's agreement became effective
($7.94) that stays at the higher level for a period of 90 days thereafter,
with a term of three years from the date of grant;
- compensation equal to that received by other directors for any period
during which Mr. Costley serves as a director;
7
<PAGE>
- medical benefits equal to those received by other employees;
- a monthly automobile allowance of $600; and
- certain reimbursable expenses.
Under his agreement, Mr. Costley may terminate his employment voluntarily
for any reason, at which time all salary and other benefits provided to
Mr. Costley will terminate. The agreement also provides that if the company
terminates Mr. Costley's employment prior to expiration for any reason other
than for change-in-control, the Company must pay Mr. Costley a termination or
severance salary equal to one year of the annual base salary earned by
Mr. Costley immediately prior to termination, which termination or severance
payment may be accelerated in Mr. Costley's sole discretion upon termination. If
a change-in-control occurs, the Company must pay Mr. Costley his highest annual
salary during the term of his employment plus the largest aggregate amount
awarded to Mr. Costley as a cash bonus, if he is terminated involuntarily for
any reason other than for "cause," death, disability or attainment of the normal
retirement date; or voluntarily terminates his employment because of a change in
his duties, position, salary or location, a reduction in responsibility or a
good faith determination by Mr. Costley that he cannot effectively perform his
duties due to the change in control.
The Company has also entered into employment agreements with Greg Johnson,
Chief Technology Officer, John Giaimo, President and Chief Operating Officer and
Douglas F. Swanson, Executive Vice President. Each agreement became effective on
March 9, 1999 and has a term ending on March 8, 2004. The agreements provide for
automatic renewal by mutual agreement of the parties. The agreements also
provide that each of these officers will be nominated for election as a member
of the board of directors during the term of the agreements. Under the
agreements, each of these executive officers is entitled to:
- a base salary of $144,000 per year;
- an annual cash bonus in an amount equal to four percent of pre-tax
earnings as stated in the annual audit;
- additional compensation as determined by the compensation committee
designated by the Board of Directors;
- an annual grant of an option to purchase shares of our common stock in an
amount equal to four percent of pre-tax earnings as stated in the annual
audit, at a price equal to the closing bid price for the common stock at
the time of grant;
- a grant of an option to purchase 500,000 shares of Common Stock at an
exercise price equal to the closing bid price for the Common stock on
June 23, 1999, of $5.31 per share. The option vested to the extent of
one-fifth of the shares covered thereby on the date of the grant and to
the extent of one-fifth of the shares covered thereby on June 23, 2000,
and thereafter vests annually to the extent of one-fifth of the shares
covered thereby on each of the first three anniversaries of June 23, 2000;
- compensation equal to that received by other directors for any period
during which that employee serves as a director;
- medical benefits equal to those received by other employees;
- a monthly automobile allowance of $600; and
- certain reimbursable expenses.
Under the agreements, each executive officer may terminate his employment
voluntarily for any reason, at which time all salary and other benefits provided
to that employee will terminate. The
8
<PAGE>
agreement also provides that if the Company terminates the employee's employment
prior to expiration for any reason other than a "change-in-control," the Company
must pay that employee a termination or severance salary equal to five years of
the annual base salary earned by that employee immediately prior to termination
and the terminated employee may, in his sole discretion, accelerate the
termination or severance payment. Each agreement provides that if a
change-in-control occurs, the Company must pay the employee his highest annual
salary during the term of his employment plus the largest amount awarded to that
employee as a cash bonus, multiplied by five, if he is terminated involuntarily
for any reason other than for "cause," death, disability or attainment of the
normal retirement date; or voluntarily terminates his employment because of a
change in his duties, position, salary or location, a reduction in
responsibility or a good faith determination by the employee that he cannot
effectively perform his duties due to the "change-in-control." Under the
agreements, a "change-in-control" is deemed to have occurred when a third
person, including a "group" as defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, becomes the beneficial owner of shares having more than
fifty percent of the total number of votes that may be cast by holders of the
Company's capital stock upon any corporate action proposed to the shareholders
for approval or adoption; or as a result of, or in connection with, any cash
tender or securities exchange offer, merger, or other business combination, sale
of assets or contested election, or any combination of the foregoing, the
persons who were directors before the transaction no longer constitute a
majority of the Company's Board of Directors or the board of the successor.
The Company has also entered into an employment agreement with Dennis P.
Gauger, our Chief Financial Officer. The agreement became effective on
October 9, 2000 for a term that ends on October 9, 2001. Under the agreement,
Mr. Gauger is entitled to:
- for a minimum 32 hours of service per week, a base salary of $140,000 per
year;
- a signing bonus of $14,000;
- additional compensation of $100 per hour for each hour worked in excess of
the minimum 32 hours per week;
- an option to purchase 100,000 shares of Common Stock at an exercise price
per share equal to the closing bid price per share on the date that
Mr. Gauger's agreement became effective ($.625), with a term of three
years from the vesting date. The option vests immediately on the date of
the agreement;
- medical benefits equal to those received by other employees;
- various reimbursable expenses.
Under the agreement, the Company has the right to terminate Mr. Gauger's
employment upon disability and for "cause." Upon termination, the Company will
be obligated to pay to Mr. Gauger, if we have not already done so:
- the prorated portion of his salary through the date of termination;
- earned and accrued bonus or incentive payments;
- any reimbursable expenses to which Mr. Gauger is entitled under the
agreement.
Also, under the agreement, Mr. Gauger may terminate his employment voluntarily
for any reason, at which time all salary and other benefits provided to that
employee will terminate. The agreement also provides that if the Company
terminates Mr. Gauger's employment prior to expiration for any reason other than
a "change-in-control," the Company must pay Mr. Gauger a termination or
severance salary equal to one year of the annual base salary earned by
Mr. Gauger immediately prior to termination and Mr. Gauger may, in his sole
discretion, accelerate the termination or severance payment. The agreement
provides that if a change-in-control occurs, the Company must pay Mr. Gauger his
highest
9
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annual salary during the term of his employment plus the largest amount awarded
to that employee as a cash bonus if he is terminated involuntarily for any
reason other than for "cause," death, disability or attainment of the normal
retirement date; or voluntarily terminates his employment because of a change in
his duties, position, salary or location, a reduction in responsibility or a
good faith determination by the employee that he cannot effectively perform his
duties due to the "change-in-control." Under the agreement, a
"change-in-control" is deemed to have occurred when a third person, including a
"group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934,
becomes the beneficial owner of shares having more than fifty percent of the
total number of votes that may be cast by holders of the Company's capital stock
upon any corporate action proposed to the shareholders for approval or adoption;
or as a result of, or in connection with, any cash tender or securities exchange
offer, merger, or other business combination, sale of assets or contested
election, or any combination of the foregoing, the persons who were directors
before the transaction no longer constitute a majority of the Company's Board of
Directors or the board of the successor.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of October 25, 2000 by (a) each person who the
Company knows beneficially owns more than five percent of its Common Stock;
(b) each of the Company's directors individually; (c) each of the executive
officers; and (d) all of the Company's directors and executive officers as a
group. Unless otherwise indicated, to the Company's knowledge, all persons
listed below have sole voting and investment power with respect to their shares
of Common Stock, except to the extent applicable law gives spouses shared
authority. Each person listed below disclaims beneficial ownership of his or its
shares, except to the extent of any pecuniary interest therein. Shares of Common
Stock that an individual or group has the right to acquire within 60 days of
October 25, 2000 pursuant to the exercise of outstanding options or other rights
to acquire shares of Common Stock, including warrants, are deemed to be
outstanding for the purpose of computing the percentage of ownership of such
person or group, but are not deemed outstanding for the purpose of calculating
the percentage owned by any other person listed. Unless otherwise indicated, the
address of each beneficial owner of more than five percent of the Common Stock
is 6490 S. McCarran Blvd., Suite D-28, Reno, Nevada 89509.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENTAGE OF CLASS (%)
------------------------------------ ------------------ -----------------------
<S> <C> <C>
Principal Stockholders:
the property portal! Limited (1)..................... 1,638,750 6.9
Room 2010 The Center
99 Queen's Road Central
Hong Kong
DIRECTORS AND EXECUTIVE OFFICERS:
Gregory L. Costley (2)................................. 442,901 1.8
Dennis P. Gauger (3)................................... 150,000 *
John Giaimo (4)........................................ 1,055,116 4.3
David Holmes (5)....................................... 183,334 *
Greg Johnson (6)....................................... 1,718,160 6.9
Bradley N. Rotter (7).................................. 516,667 2.2
Douglas F. Swanson (8)................................. 1,608,058 6.4
All Directors and Executive Officers as a Group
(7 persons) (9)...................................... 5,674,236 20.0
</TABLE>
------------------------
* Less than 1%.
10
<PAGE>
(1) the property portal! Limited acquired 1,638,750 shares of our Common Stock
on May 19, 1999 in a transaction whereby we acquired 1,613,000 shares of
common stock of the property portal! Limited.
(2) Shares of Common Stock beneficially owned include options to purchase
434,458 shares of Common Stock through November 30, 2003 at exercise prices
ranging from $2.03 per share to $7.94 per share.
(3) Shares of Common Stock beneficially owned include warrants to purchase
50,000 shares of Common Stock through May 24, 2003 at an exercise price of
$2.81 per share and options to purchase 100,000 shares of Common Stock
through October 9, 2003 at an exercise price of $.625 per share.
(4) Shares of Common Stock beneficially owned include options to purchase
951,794 shares of Common Stock through May 18, 2004 at exercise prices
ranging from $1.47 per share to $8.81 per share, including options to
purchase 4,581 shares of Common Stock owned by Melinda Giaimo, Mr. Giaimo's
spouse and an employee of the Company, and 2,470 shares owned by
Mr. Giaimo's children.
(5) Shares of Common Stock beneficially owned include warrants to purchase
183,334 shares of Common Stock through November 30, 2003 at exercise prices
ranging from $2.03 per share to $4.00 per share.
(6) Shares of Common Stock beneficially owned include options to purchase
1,296,598 shares of Common Stock through May 18, 2004 at exercise prices
ranging from $1.47 per share to $8.81 per share.
(7) Shares of Common Stock beneficially owned include warrants to purchase
183,334 shares of Common Stock through November 30, 2003 at exercise prices
ranging from $2.03 per share to $4.00 per share.
(8) Shares of Common Stock beneficially owned include options to purchase
1,537,879 shares of Common Stock through May 18, 2004 at exercise prices
ranging from $1.47 per share to $8.81 per share.
(9) Shares of Common Stock beneficially owned include warrants to purchase
416,668 shares of Common Stock through November 30, 2003 at exercise prices
ranging from $2.03 per share to $4.00 per share and options to purchase
4,320,729 shares of Common Stock through May 18, 2004 at exercise prices
ranging from $.625 per share to $8.81 per share.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS.
LOANS TO MANAGEMENT
In May 1999 the Company loaned John Giaimo, the President, $50,000 at 12%
interest per annum. The note was due July 2000. The $50,000 principal amount was
repaid on February 11, 2000, and the interest was forgiven. On April 18, 2000,
the Company loaned Mr. Giaimo $70,000 at 12% interest per annum due June 30,
2000. As of September 30, 2000, Mr. Giaimo had repaid $1,000 of the principal
amount of this loan.
In March 2000 the Company advanced Douglas F. Swanson, the Executive Vice
President, $319,637 for the payment of tax withholding on option exercises at
12% interest per annum. As of September 30, 2000, Mr. Swanson had repaid
$100,000 of the principal amount of this loan.
11
<PAGE>
LOANS FROM AFFILIATES
William Tomerlin, formerly an owner of more than 5% of the Company's
outstanding common stock, loaned the Company $40,000 during September 1998,
$195,000 during December 1998, and $150,000 during January 1999 all at 12%
interest per annum. The entire $385,000 including accrued interest was repaid to
Mr. Tomerlin during January 1999.
LOAN FROM POINT WEST VENTURES, L.P.
Bradley N. Rotter, a Director of the Company since March 1999, is the
Chairman of Point West Ventures, L.P. ("Point West"). In September 1998, Point
West lent the Company $250,000. The annual interest rate for this indebtedness
was 14% and amounts outstanding under the loan were collateralized by 700,000
shares of Webquest stock held by the Company. In connection with the loan, the
Company granted Point West an initial warrant to purchase 50,000 shares of
Common Stock at an exercise price of $2.47 per share. The Company also agreed to
grant Point West additional warrants to purchase 50,000 shares of Common Stock
at an exercise price of $2.47 per share at the end of each of the Company's
fiscal quarters if any principal or interest on the loan remained outstanding at
the end of any such quarter.
The Company repaid $245,000 of principal in January 1999 and the remaining
$5,000 of principal in June 1999. The Company paid Point West an aggregate of
$9,059 in interest under the loan and granted Point West warrants to purchase an
aggregate of 250,000 shares of Common Stock at an exercise price of $2.47 per
share in connection with this transaction.
WEBQUEST INTERNATIONAL TRANSACTIONS
During fiscal 1998, the Company accepted the settlement of an outstanding
receivable of $700,000 from WebQuest International, a public company related by
common shareholders, by receipt of 700,000 shares of restricted common stock of
WebQuest. At June 30, 1998, a writedown to the estimated fair market value of
the investment, expected to be temporary in nature, was recorded in
comprehensive loss for the entire amount of $700,000. The receivable was related
to the license of technology to WebQuest, which had been recorded as deferred
revenue until collectibility was assured.
During fiscal 1999, the Company sold 400,000 shares of WebQuest common stock
at $1.50 per share and the Company recognized a portion of the deferred revenue.
The Company received an additional 100,000 shares of WebQuest common stock as
consideration for the termination of certain operating agreements between
WebQuest and the Company. The Company recorded other comprehensive income during
fiscal 1999 of $700,000 to reverse the writedown of the investment in the
WebQuest common stock.
During fiscal 2000, the Company received an additional 400,000 shares of
WebQuest common stock in payment of notes and accounts receivable due from
WebQuest and as further consideration for the termination of certain operating
agreements between WebQuest and the Company. At various dates during fiscal
2000, the Company sold 54,300 shares of the WebQuest common stock at an average
sales price of $1.85, recognizing a gain on sale included in other income of
approximately $46,000.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
(a) Exhibits:
See Exhibit Index following the signature page of this Form 10-KSB/A.
12
<PAGE>
HOMESEEKERS.COM, INCORPORATED
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-1
Report of Independent Certified Public
Accountants--Albright, Persing & Associates, LTD.......... F-2
Consolidated Balance Sheets at June 30, 2000 and 1999....... F-3
Consolidated Statements of Operations for the Years Ended
June 30, 2000 and 1999.................................... F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended June 30, 2000 and 1999........................ F-5
Consolidated Statements of Cash Flows for the Years Ended
June 30, 2000 and 1999.................................... F-7
Notes to Consolidated Financial Statements.................. F-9
</TABLE>
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
HomeSeekers.com, Incorporated
We have audited the accompanying consolidated balance sheet of HomeSeekers.com,
Incorporated as of June 30, 2000, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of HomeSeekers.com,
Incorporated as of June 30, 2000, and the consolidated results of its operations
and its cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming
HomeSeekers.com, Incorporated will continue as a going concern. As discussed in
Note 2, the Company's significant operating losses, accumulated deficit and
uncertainty as to the Company's ability to secure additional financing raise
substantial doubt about the Company's ability to continue as a going concern.
Management's current plans and actions with respect to these matters are also
discussed in Note 2. The June 30, 2000 financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
ERNST & YOUNG LLP
Reno, Nevada
September 11, 2000
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
HomeSeekers.com, Incorporated
We have audited the accompanying consolidated balance sheet of
HomeSeekers.com, Incorporated and subsidiaries as of June 30, 1999 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year then ended. These financial statements are the responsibility
of HomeSeekers.com, Incorporated's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of
HomeSeekers.com, Incorporated and subsidiaries at June 30, 1999 and the
consolidated results of their operations and their cash flows for the year then
ended, in conformity with generally accepted accounting principles.
Albright, Persing & Associates, LTD.
Reno, Nevada
July 22, 1999, except for Note 3, as to
which the date is August 4, 1999
F-2
<PAGE>
HOMESEEKERS.COM, INCORPORATED
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND 1999
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 2,078 $10,617
Accounts receivable, net of allowance for uncollectible
accounts of $141 in 2000 and $38 in 1999................ 1,023 1,697
Accounts and notes receivable, related parties............ 159 283
Prepaid expenses.......................................... 897 309
------- -------
Total current assets.................................... 4,157 12,906
Investments, net of valuation allowance of $3,153 in 2000
and $0 in 1999............................................ 3,535 400
Investment in foreign affiliate............................. 7,517 --
Property and equipment, net................................. 4,163 1,170
Purchased intangible assets, net of accumulated amortization
of $4,150 in 2000 and $602 in 1999........................ 20,531 2,377
Other assets................................................ 123 36
------- -------
$40,026 $16,889
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable.......................................... $ 1,570 $ 630
Accrued payroll and other liabilities..................... 1,479 454
Liability under purchase agreement........................ 1,500 --
Long-term obligations, current portion.................... 99 39
Deferred revenue.......................................... 4,162 2,693
------- -------
Total current liabilities............................... 8,810 3,816
Long-term liabilities
Long-term obligations..................................... 153 50
Deferred revenue.......................................... 862 333
------- -------
Total long-term liabilities............................. 1,015 383
Commitments and contingencies
Stockholders' equity
Common stock; $.001 par, 50,000,000 shares authorized;
21,433,210 shares and 14,946,283 shares issued and
outstanding at June 30, 2000 and 1999, respectively..... 21 15
Additional paid-in capital................................ 72,113 29,051
Accumulated deficit....................................... (40,960) (15,926)
Investment in LLC......................................... -- (450)
Note receivable from officer.............................. (320) --
Accumulated other comprehensive loss...................... (653) --
------- -------
Total stockholders' equity.............................. 30,201 12,690
------- -------
$40,026 $16,889
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
HOMESEEKERS.COM, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Revenues.................................................... $ 11,090 $ 3,419
Cost of revenues............................................ 6,097 567
----------- -----------
Gross profit.............................................. 4,993 2,852
Operating expenses.......................................... 30,505 8,011
----------- -----------
Loss from operations........................................ (25,512) (5,159)
Other income (expense)
Interest expense.......................................... (77) (31)
Interest income........................................... 290 192
Other, net................................................ 265 156
----------- -----------
478 317
----------- -----------
Net loss.................................................... (25,034) (4,842)
Other comprehensive income (loss)........................... (653) 700
----------- -----------
Total comprehensive loss.................................... $ (25,687) $ (4,142)
=========== ===========
Net loss.................................................... $ (25,034) $ (4,842)
Preferred dividends paid.................................... -- (595)
----------- -----------
Net loss attributable to common stockholders................ $ (25,034) $ (5,437)
=========== ===========
Basic and diluted net loss per common share................. $ (1.47) $ (.53)
=========== ===========
Shares used in computing basic and diluted share data....... 17,031,852 10,235,286
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
HOMESEEKERS.COM, INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SERIES A ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL INVESTMENT OTHER
------------------- --------------------- PAID IN IN COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL LLC LOSS
-------- -------- ---------- -------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1998................ 692,000 $ 1 7,460,703 $ 8 $11,112 $ -- $(700)
-------- ---- ---------- --- ------- ----- -----
Conversion of series A convertible
preferred stock to common stock....... (692,000) (1) 1,384,000 1 -- -- --
Shares issued for series A convertible
preferred dividends................... -- -- 108,432 -- 595 -- --
Shares issued for cash.................. -- -- 4,418,595 5 12,472 -- --
Exercises of stock options.............. -- -- 149,376 -- 234 -- --
Exercises of warrants................... -- -- 1,082,845 1 3,086 -- --
Conversion of convertible debt.......... -- -- 70,123 -- 141 -- --
Shares issued to effect acquisitions.... -- -- 220,872 -- 1,246 -- --
Shares issued for services.............. -- -- 51,337 -- 105 -- --
Warrants issued for services............ -- -- -- -- 60 -- --
Reclassification of investment in LLC... -- -- -- -- -- (450) --
Comprehensive income (loss):
Net loss.............................. -- -- -- -- -- -- --
Reversal of prior year unrealized loss
on securities....................... -- -- -- -- -- -- 700
Comprehensive loss...................... -- -- -- -- -- -- --
-------- ---- ---------- --- ------- ----- -----
Balance at June 30, 1999................ -- $ -- 14,946,283 $15 $29,051 $(450) $ --
-------- ---- ---------- --- ------- ----- -----
<CAPTION>
NOTE
RECEIVABLE
ACCUMULATED FROM STOCKHOLDERS'
DEFICIT OFFICER EQUITY
----------- ---------- -------------
<S> <C> <C> <C>
Balance at June 30, 1998................ $(10,489) $ -- $ (68)
-------- ----- --------
Conversion of series A convertible
preferred stock to common stock....... -- -- --
Shares issued for series A convertible
preferred dividends................... (595) -- --
Shares issued for cash.................. -- -- 12,477
Exercises of stock options.............. -- -- 234
Exercises of warrants................... -- -- 3,087
Conversion of convertible debt.......... -- -- 141
Shares issued to effect acquisitions.... -- -- 1,246
Shares issued for services.............. -- -- 105
Warrants issued for services............ -- -- 60
Reclassification of investment in LLC... -- -- (450)
Comprehensive income (loss):
Net loss.............................. (4,842) -- (4,842)
Reversal of prior year unrealized loss
on securities....................... -- -- 700
--------
Comprehensive loss...................... -- -- (4,142)
-------- ----- --------
Balance at June 30, 1999................ $(15,926) $ -- $ 12,690
-------- ----- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
HOMESEEKERS.COM, INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SERIES A ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL INVESTMENT OTHER
--------------------------- --------------------- PAID IN IN COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL LLC LOSS
------------ ------------ ---------- -------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1999......... -- $ -- 14,946,283 $ 15 $29,051 $(450) $ --
------------ ------------ ---------- ---- ------- ----- -----
Securities acquired in settlement
of investment in LLC........... -- -- -- 793 450 --
Shares issued for services....... -- -- 277,969 -- 3,282 -- --
Warrants issued for services..... -- -- -- -- 463 -- --
Exercises of stock options....... -- -- 677,497 -- 1,495 -- --
Exercises of warrants............ -- -- 1,026,039 1 3,033 -- --
Shares issued for cash........... -- -- 917,407 1 5,436 -- --
Shares issued for asset and
investment purchases........... -- -- 341,077 -- 3,838 -- --
Compensation charge for option
exercise....................... -- -- -- -- 156 -- --
Shares issued in business
acquisitions................... -- -- 1,608,188 2 16,846 -- --
Shares and warrants issued for
investment in foreign
affiliate...................... -- -- 1,638,750 2 7,720 -- --
Issuance of note receivable to
officer for option exercise.... -- -- -- -- -- -- --
Comprehensive loss:
Net loss....................... -- -- -- -- -- -- --
Unrealized loss on securities.... -- -- -- -- -- -- (653)
Comprehensive loss............... -- -- -- -- -- -- --
------------ ------------ ---------- ---- ------- ----- -----
Balance at June 30, 2000......... -- $ -- 21,433,210 $ 21 $72,113 $ -- $(653)
------------ ------------ ---------- ---- ------- ----- -----
<CAPTION>
NOTE
RECEIVABLE
ACCUMULATED FROM STOCKHOLDERS'
DEFICIT OFFICER EQUITY
----------- ---------- -------------
<S> <C> <C> <C>
Balance at June 30, 1999......... $(15,926) $ -- $ 12,690
-------- ------- --------
Securities acquired in settlement
of investment in LLC........... -- -- 1,243
Shares issued for services....... -- -- 3,282
Warrants issued for services..... -- -- 463
Exercises of stock options....... -- -- 1,495
Exercises of warrants............ -- -- 3,034
Shares issued for cash........... -- -- 5,437
Shares issued for asset and
investment purchases........... -- -- 3,838
Compensation charge for option
exercise....................... -- -- 156
Shares issued in business
acquisitions................... -- -- 16,848
Shares and warrants issued for
investment in foreign
affiliate...................... -- -- 7,722
Issuance of note receivable to
officer for option exercise.... -- (320) (320)
Comprehensive loss:
Net loss....................... (25,034) -- (25,034)
Unrealized loss on securities.... -- -- (653)
--------
Comprehensive loss............... -- -- (25,687)
-------- ------- --------
Balance at June 30, 2000......... $(40,960) $ (320) $ 30,201
-------- ------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
HOMESEEKERS.COM, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net loss.................................................. $(25,034) $ (4,842)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation............................................ 1,202 290
Amortization............................................ 4,110 241
Write down of investment................................ 2,793 --
Gain on sale of securities.............................. (46) (200)
Other................................................... 42 (26)
Common stock and warrants issued for services........... 653 165
Changes in assets and liabilities net of effect from
acquisitions
Accounts receivable..................................... 1,090 (1,471)
Prepaid expenses........................................ (550) (279)
Other assets............................................ (86) 17
Accounts payable........................................ 383 127
Accrued payroll and other liabilities................... 1,090 (12)
Deferred revenue........................................ 1,864 1,779
-------- --------
Net cash used in operating activities............... (12,489) (4,211)
Cash flows from investing activities
Purchase of property and equipment........................ (2,238) (1,277)
Purchase of intangible assets............................. (1,114) --
Issuance of notes receivable.............................. (440) (150)
Payments on notes receivable.............................. 190 25
Business acquisitions, net of cash........................ (1,441) (8)
Proceeds from sales of securities......................... 101 600
Proceeds from sales of property and equipment............. 343 29
Payment from foreign affiliate............................ 200 --
Net change in other assets................................ -- 80
Investment in foreign affiliate........................... (387) --
-------- --------
Net cash used in investing activities............... (4,786) (701)
Cash flows from financing activities
Proceeds from notes payable--related parties.............. -- 685
Payments on notes payable--related parties -- (730)
Proceeds from notes payable............................... -- 250
Repayments of debt........................................ (1,232) (672)
Net proceeds from sale/exercise of common stock, options,
and warrants............................................ 9,968 15,798
-------- --------
Net cash provided by financing activities........... 8,736 15,331
-------- --------
Net increase (decrease) in cash............................. (8,539) 10,419
Cash and cash equivalents at beginning of year.............. 10,617 198
-------- --------
Cash and cash equivalents at end of year.................... $ 2,078 $ 10,617
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
HOMESEEKERS.COM, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
(AMOUNTS IN THOUSANDS)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Cash paid for interest.................................... $ 77 $ 13
======== ========
Cash paid for income taxes................................ $ -- $ 1
======== ========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Common stock issued for advertising/exclusive provider
arrangement............................................. $ 3,091 $ --
Common stock issued for investment........................ 3,000 --
Investment acquired for advertising arrangement........... 2,000 --
Investment acquired as settlement of investment in LLC.... 1,243 --
Net decrease in investments and increase in comprehensive
loss.................................................... (653) 700
Common stock and warrants issued for investment in foreign
affiliate............................................... 7,722 --
Common stock issued for purchased intangible assets....... 838 200
Investment acquired through reduction of accounts and
notes receivable, related party......................... 208 --
Conversion of convertible debt to common stock............ -- 140
Common stock issued for payment of accrued liabilities.... -- 50
Common stock issued for preferred stock dividends......... -- 595
Investment received for sale of technology................ -- 100
BUSINESS ACQUISITIONS
Shares issued in business acquisitions...................... (16,848) (971)
Cash paid................................................... (1,441) (8)
Liability under purchase agreement.......................... (1,500) --
Accounts receivable, net.................................... 550 135
Prepaid expenses............................................ 37 --
Property and equipment...................................... 1,932 108
Purchased intangible assets................................. 19,727 1,440
-------- -------
Liabilities assumed......................................... $ 2,457 $ 704
======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
HOMESEEKERS.COM, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
NOTE 1-- ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
ORGANIZATION
HomeSeekers.com, Incorporated (the "Company"), a successor to various
companies through mergers, was originally incorporated under the laws of Utah on
January 31, 1983. The Company is a provider of web-based and other information
and technology targeted for use by professionals, consumers, and other parties
involved in the real estate industry.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of
HomeSeekers.com, Inc. and its wholly owned subsidiaries. All significant
inter-company balances and transactions have been eliminated in consolidation.
Certain reclassifications have been made to prior year consolidated financial
statements to conform to the current year's presentation.
SEGMENT REPORTING
During the year ended June 30, 1999, the Company adopted Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131") which establishes standards for the way that public business
enterprises report information about operating segments. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. The Company has determined that for the years ended
June 30, 2000 and 1999, it operated in one business segment, real estate
technology and information. In addition, through June 30, 2000, the Company's
operations were conducted primarily in the United States.
REVENUE RECOGNITION
Revenues from the sale of advertising placed in real estate publications are
recognized upon the distribution of real estate publications in their individual
market areas. Advance payments received for real estate publications advertising
are shown as deferred revenues in the accompanying balance sheets. Direct
expenses related to the production and distribution of real estate publications
(including listings, production, printing and distribution costs) are recognized
concurrently with the related revenues upon real estate publications
distribution.
The Company also sells banner advertising pursuant to contracts with terms
varying from 3 to 5 years, which may include the guarantee of a minimum number
of click-throughs or links by the users of the Company's online properties.
Arrangements where the Company receives up front fees associated with
advertising services are deferred and recognized as revenue on the straight-line
method over the terms of the respective contracts. The Company also sells leads,
referrals and data matching services pursuant to certain contracts. Revenue from
leads, referrals, data matching services and other performance-based
arrangements is recognized as such services are delivered or other performance
criteria are met, provided that no significant Company obligations remain and
collection of the related receivable is probable.
The Company has also derived revenue from technology services provided and
productivity and information tools sold to real estate professionals and
consumers. The Company recognizes such revenue in accordance with Statement of
Position 97-2, Software Revenue Recognition ("SOP 97-2"),
F-9
<PAGE>
HOMESEEKERS.COM, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 AND 1999
NOTE 1-- ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
as amended by Statement of Position 98-4, Deferral of the Effective Date of
Provision of SOP 97-2 ("SOP 98-4"), and Statement of Position 98-9, Modification
of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions
("SOP 98-9"). The Company derives revenue from the sale of software licenses.
Revenue from license fees is recognized when persuasive evidence of an agreement
exists, delivery of the product has occurred, the fee is fixed or determinable
and collectibility is probable. If collectibility is not considered probable,
revenue is recognized when the fee is collected.
The Company recognizes revenue allocated to maintenance fees for ongoing
customer support and product updates ratably over the period of the maintenance
contract. Payments for maintenance fees are generally made in advance, are
non-refundable and have terms of one to two years.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements "(SAB
101"). SAB 101 states that all registrants are expected to apply the accounting
and disclosures described in it. The SEC staff, however, will not object if
registrants that have not applied this accounting and do not restate prior
financial statements provided they report a change in accounting principle in
accordance with APB Opinion No. 20, Accounting Changes, by cumulative catch-up
adjustment no later than the fourth fiscal quarter of the fiscal year beginning
after December 15, 1999. The Company is currently evaluating the impact, if any,
of SAB 101 on its consolidated financial statements.
PRODUCT DEVELOPMENT COSTS
Costs incurred by the Company to develop, enhance, manage, monitor and
operate the Company's web site are expensed as incurred. The Company accounts
for the costs of developing software products to be sold in accordance with
Statement of Financial Accounting Standards 86, "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed" which requires the
capitalization of costs only during the period from the establishment of
technological feasibility to the time at which the product is available for
general release to customers. In addition, the Company is involved in activities
to continually improve existing products. These costs have been charged to
operating expenses in the accompanying consolidated statements of operations in
the amounts of $1,413,186 and $517,440 for the years ended June 30, 2000 and
1999, respectively.
The Company has adopted SOP 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. SOP 98-1 establishes the
accounting practice for capitalization of certain costs incurred in connection
with the acquisition or development of computer software to be used for internal
purposes, including internal costs. The adoption of SOP 98-1 did not have a
material effect on the Company's consolidated financial statements or cause the
Company to capitalize any material costs associated with the acquisition or
development of computer software to be used by the Company for internal
purposes.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash balances and instruments with
maturities of three months or less at the time of purchase.
F-10
<PAGE>
HOMESEEKERS.COM, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 AND 1999
NOTE 1-- ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
CONCENTRATIONS
CONCENTRATION OF CREDIT RISK--Financial instruments which potentially
subject the Company to credit risk consist primarily of cash in bank, trade
receivables, and receivables from officers/ stockholders. At June 30, 2000,
substantially all trade receivables are due from customers within the real
estate and related industries.
CONCENTRATIONS OF OPERATIONS--All of the Company's current products are
designed for operation in the national and international real estate markets.
Any recessionary pressures or other disturbances in those markets could have an
adverse effect on the Company's operations.
For the year ended June 30, 1999, 19% of the Company's revenues were
received from one customer for click-through customer leads generated from the
Company's Internet site and from its proprietary software. In addition, 12% of
the Company's revenues were received from one customer for the sale of mortgage
leads. Revenues received from a related party for the sale of technology and
custom programming accounted for 15% of the Company's revenues. For the year
ended June 30, 2000, no single customer accounted for over 10% of the Company's
revenues.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include capital lease obligations,
long-term debt, cash and cash equivalents, accounts receivable and accounts
payable. The carrying amounts of capital lease obligations approximate their
fair values, which have been determined by the use of discounted cash flow
analyses. The carrying values of the Company's long-term debt approximated their
fair values, based on current incremental borrowing rates for similar types of
borrowing arrangements. The carrying amounts of cash and cash equivalents,
accounts receivable and accounts payable approximate fair value, based upon
their short-term nature.
FINANCIAL STATEMENTS ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
INVESTMENTS
At December 31, 1999 the Company's entire portfolio of marketable securities
is classified as available-for-sale. These securities are stated at fair market
value, determined based on quoted market prices, with the unrealized gains and
losses reported in a separate component of stockholders' equity. Realized gains
are included in other income (expense) in the statement of operations. The cost
of securities sold is based on the specific identification method.
F-11
<PAGE>
HOMESEEKERS.COM, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 AND 1999
NOTE 1-- ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization is
calculated using the straight line method over estimated useful lives of 3 to
5 years, or the lease term, whichever is shorter.
PURCHASED INTANGIBLE ASSETS
The Company's intangible assets, primarily purchased in business
acquisitions, are stated at cost and are amortized on a straight-line basis over
periods ranging from 3 to 15 years.
ASSET IMPAIRMENT
The Company reviews its purchased intangible and other long-lived assets
periodically in accordance with Statement of Financial Accounting Standard
("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of, to determine potential impairment by
comparing the carrying value of the assets with estimated undiscounted future
cash flows expected to result from the use of the assets, including cash flows
from disposition. Based on this analysis, if the sum of the expected future
undiscounted net cash flow is less than its carrying value, the Company would
determine whether an impairment loss should be recognized.
INCOME TAXES
The Company accounts for income taxes by the asset/liability approach in
accordance with the provisions of SFAS No. 109, Accounting for Income Taxes.
Under this pronouncement, deferred income taxes, if any, reflect the estimated
future tax consequences when reported amounts of assets and liabilities are
recovered or paid. Deferred income tax assets and liabilities are determined
based on differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that are
scheduled to be in effect when the differences are expected to reverse. The
provision for income taxes, if any, represents the total income taxes paid or
payable for the current year, plus the change in deferred taxes during the year.
The tax benefits related to operating loss carry forwards are recognized if
management believes, based on available evidence, that it is more likely than
not that they will be realized.
ADVERTISING
The Company accounts for advertising costs as expenses in the period in
which they are incurred. Total advertising costs for the years ended June 30,
2000 and 1999 were $1,854,212 and $548,089, respectively.
NET LOSS PER SHARE
Basic and diluted net loss per share are presented in conformity with
Statement of Financial Accounting Standards No. 128, Earnings per Share.
Basic net loss per share has been determined using net loss divided by the
weighted average shares outstanding during the period. Diluted EPS is computed
by dividing net loss by the weighted average
F-12
<PAGE>
HOMESEEKERS.COM, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 AND 1999
NOTE 1-- ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
shares outstanding, assuming all dilutive potential common shares were issued.
Since the diluted loss per share for fiscal 2000 and 1999 was anti-dilutive,
basic and diluted loss per share are the same. Accordingly, options to purchase
common stock in fiscal 2000 and 1999 of 7,068,446 shares and 4,082,874 shares,
respectively, and warrants to purchase common stock in fiscal 2000 and 1999 of
2,557,088 and 1,871,657 shares, respectively, were not included in the
calculation of diluted loss per common share.
STOCK OPTIONS
The Company adopted SFAS No. 123, Accounting for Stock Based Compensation,
which is effective for fiscal years beginning after December 15, 1995, or
earlier as permitted. As provided by SFAS No. 123, the Company will continue to
account for employee stock options under Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees. The Company has
disclosed the proforma net loss and net loss per share effect in Note 10, as if
the Company had used the fair value based method prescribed under SFAS No. 123.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities" ("SFAS 133") which
establishes accounting and reporting standards of derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. In July 1999, the Financial Accounting Standards Board
issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133". SFAS 137
deferred the effective date until the first fiscal quarter of the year ending
June 30, 2001 and the Company has not yet determined whether such adoption will
have a material impact on its financial statements.
NOTE 2--BASIS OF PRESENTATION
The Company incurred net losses of approximately $25,034,000 and $4,842,000
during the years ended June 30, 2000 and 1999, respectively, and at June 30,
2000 had an accumulated deficit of approximately $40,960,000. In addition, the
Company used cash of approximately $12,489,000 to fund operations during the
most recent year. The report of independent auditors on the Company's June 30,
2000 financial statements includes an explanatory paragraph indicating there is
substantial doubt about the Company's ability to continue as a going concern.
Management is developing a plan to address these issues and allow the Company to
continue as a going concern through the end of fiscal year 2001. This plan
includes obtaining debt or equity financing in amounts sufficient to fund
operations and continued growth, realize the revenue potential of its business
acquisitions and current products and services, fund capital expenditures and
reduce operating expenses as necessary. However, there is only a limited
operating history with the existing business model, the Company must integrate
its recent business acquisitions, and there is no assurance that the necessary
financing can be obtained or on what terms it may be obtained. The accompanying
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the outcome of this
uncertainty.
F-13
<PAGE>
HOMESEEKERS.COM, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 AND 1999
NOTE 3--BUSINESS ACQUISITIONS
The Company has completed the asset and business acquisitions discussed
below, all of which were accounted for by the purchase method of accounting.
Accordingly, results of operations for the acquired businesses have been
included in the consolidated statements of operations from their respective
dates of acquisition. The purchase price of each acquisition has been allocated
to the assets acquired and the liabilities assumed based on the estimated fair
market value at the date of acquisition.
GENSTAR MEDIA
On August 4, 1998, the Company purchased substantially all of the assets of
Genstar Media, a sole proprietorship engaged in the business of offering
websites and e-mail to realtors. These assets included the customer base,
computers and other media equipment, and the business name. The purchase price
consisted of 50,000 shares of the Company's common stock issued to the seller.
The Company valued the securities issued at approximately $225,000 based on the
fair market value of the common stock on the date of acquisition. In addition,
the Company committed to the contingent issuance of common stock having an
aggregate value of $400,000 if certain revenue thresholds were met. During the
years ended June 30, 2000 and 1999, the revenue levels were met and the
additional common stock was issued and the Company allocated an additional
$400,000 to the customer base. During the year ended June 30, 2000, the net
remaining unamortized balance of the customer base relating to these increases
of approximately $267,000 was written off due to uncertain recoverability of the
asset.
HOLLOWAY PUBLICATIONS, INC. ("HPI")
On May 28, 1999, the Company acquired all of the issued and outstanding
common stock of Holloway Publications, Inc., a non-public real estate magazine
publication company, in exchange for 150,872 shares of the Company's common
stock, valued at approximately $971,000 based on the fair market value of the
Company's common stock at the date of acquisition. In addition, subsequent to
the purchase date, the Company paid off all the outstanding bank notes payable
of Holloway Publications, Inc., along with certain accounts payable and
stockholder loans, in the total amount of approximately $475,000. The excess of
cost over the fair market value of the net assets acquired was approximately
$1,304,000, which is being amortized over 15 years.
REAL ESTATE TECHNOLOGY INSTITUTE, INC. ("RETI")
On July 13, 1999, the Company purchased certain intangible assets of Real
Estate Technology Institute, Inc., an Internet web site sales and production
company, for $40,000 cash and 28,000 shares of the Company's common stock valued
at approximately $225,000 based on the fair market value of the Company's common
stock at the date of acquisition.
TERRADATUM, LLC ("TERRADATUM")
On September 30, 1999, the Company acquired 100% of Terradatum, a developer,
marketer, and licensor of Internet-based multiple listing service systems.
Consideration consisted of 640,000 shares of the Company's common stock valued
at approximately $7,960,000 based on the fair market value of the Company's
common stock at the date of acquisition and $200,000 in cash. The acquisition
agreement calls for additional cash consideration of $1,500,000 if the market
price of the Company's common stock is below certain levels prior to the first
anniversary of the closing date, and has been recorded as
F-14
<PAGE>
HOMESEEKERS.COM, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 AND 1999
NOTE 3--BUSINESS ACQUISITIONS (CONTINUED)
a current liability as of June 30, 2000 because the market price of the
Company's common stock is projected to be below the stipulated level. The
purchase price, including the additional payment, was allocated primarily to
purchased technology in the approximate amount of $7,966,000, which is being
amortized over 3 years.
INFORMATION MANAGEMENT COMPANY, INC. ("IMCO")
On September 30, 1999, the Company completed its acquisition of IMCO, a
provider of electronic publishing and software development for the real estate
listing management industry. The purchase price consisted of 341,151 shares of
the Company's common stock valued at $1,000,000, based on the fair market value
of the stock given in the acquisition. The acquisition agreement provides for
additional consideration of $1,000,000 payable in the Company's common stock
depending on the closing prices of the Company's common stock on specified days
preceding the first and second anniversaries of the agreement. This amount has
been recorded as additional purchase price and included as additional paid in
capital. The purchase price was allocated primarily to purchased technology in
the approximate amount of $1,918,000, which is being amortized over 3 years.
HOME SEEKERS MAGAZINES, INC ("HMI")
On February 8, 2000, the Company completed the acquisition of Home Seekers
Magazines, Inc., a real estate magazine publication company, for approximately
$1,053,000 in cash and the assumption of approximately $1,189,000 in
liabilities. The excess cost over the fair market value of the net assets
acquired was approximately $1,858,000, which is being amortized over 15 years.
INFORMATION SOLUTIONS GROUP, INC ("ISG")
On April 3, 2000, the Company acquired Information Solutions Group, a real
estate electronic forms provider. The purchase price consisted of 279,400 shares
of the Company's common stock valued at approximately $4,238,000, based upon the
average closing price of the stock on specified days preceding the date of
acquisition, the assumption of liabilities of approximately $849,000 and other
costs aggregating $346,000. The acquisition provides for additional
consideration payable in the Company's common stock depending upon the closing
prices of the Company's common stock on specified days preceding the first
anniversary of the closing date and if certain revenue targets are met, for
which the Company has recorded an additional $1,000,000 at June 30, 2000. The
purchase price was allocated partially to intangible assets in the amount of
approximately $1,500,000, which are being amortized over 3 years. The excess of
cost over the fair market value of the net assets acquired was approximately
$4,705,000, which is being amortized over 5 years.
CONNECT2CALL.COM ("C2C")
On June 9, 2000, The Company acquired Connect2Call.com, a developer of
voice-over-internet protocol and web-enabled, interactive voice communication
technologies. The purchase price consisted of 347,639 shares of the Company's
common stock valued at approximately $1,434,000 based on the fair market value
of the Company's common stock at the date of acquisition. The acquisition
provides for additional consideration payable in the Company's common stock
depending upon the closing prices of the Company's common stock on specified
days preceding an effective registration and certain earnings
F-15
<PAGE>
HOMESEEKERS.COM, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 AND 1999
NOTE 3--BUSINESS ACQUISITIONS (CONTINUED)
targets. The purchase price was allocated primarily to purchased technology and
a covenant not to compete in the approximate amounts of $699,000 and $675,000,
respectively, and is being amortized over three years.
The following unaudited pro forma summary presents financial information as
if the acquisitions discussed above occurred as of the beginning of the
Company's fiscal years ended June 30, 2000 and 1999.
The pro forma amounts include certain adjustments, primarily to record
additional amortization of purchased intangible assets, and do not reflect any
benefits from economies that might be achieved from combining operations.
The pro forma information does not necessarily reflect the actual results
that would have occurred nor is it necessarily indicative of future results of
operation of the combined companies.
<TABLE>
<CAPTION>
2000 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA, UNAUDITED) ---------- --------
<S> <C> <C>
Revenues............................................... $ 16,199 $ 13,088
========== ========
Net loss............................................... (27,232) (10,129)
========== ========
Basic and diluted net loss per common share............ $ (1.53) $ (.85)
========== ========
</TABLE>
NOTE 4--INVESTMENTS
As of June 30, 2000 and 1999, the Company had investments as follows:
<TABLE>
<CAPTION>
2000 1999
---------- --------
<S> <C> <C>
Investments in marketable securities.................. $1,035,100 $400,000
Investment in non-public company, related party....... 2,500,000 --
---------- --------
$3,535,100 $400,000
========== ========
</TABLE>
Descriptions of the investments, as well as certain transactions occurring
during the years ended June 30, 2000 and 1999, are described in the following
paragraphs.
F-16
<PAGE>
HOMESEEKERS.COM, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 AND 1999
NOTE 4--INVESTMENTS (CONTINUED)
INVESTMENTS IN MARKETABLE SECURITIES
The Company's investments in marketable securities are held for an
indefinite period and thus are classified as available for sale. Investments in
marketable securities at June 30, 2000 and 1999 are summarized as follows:
<TABLE>
<CAPTION>
2000 1999
------------------------------------ --------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
GAIN FAIR 1999 GAIN FAIR
COST (LOSS) VALUE COST (LOSS) VALUE
---------- ---------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Common stock...................... $1,242,870 $(830,670) $ 412,200 $ -- $700,000 $ --
Common stock, related party....... 445,700 177,200 622,900 400,000 -- 400,000
---------- --------- ---------- -------- -------- --------
$1,688,570 $(653,470) $1,035,100 $400,000 $700,000 $400,000
========== ========= ========== ======== ======== ========
</TABLE>
COMMON STOCK
During the year ended June 30, 1999, the Company was an investor in an LLC
with Finet.com, a publicly held mortgage company, and the Company entered into a
license agreement with Finet.com in place of this agreement and agreed to
dissolve the LLC. At June 30, 1999 the investment in the LLC had been accounted
for as an offset to stockholders' equity as the primary asset of the LLC was the
Company's common stock.
During the year ended June 30, 2000, the Company sold its 50% interest in
the LLC to Finet.com for 600,000 common shares of Finet.com. The Company
recorded its investment based on the Finet.com quoted market price less a
discount of 15%, as the shares were unregistered. The offset to equity was
eliminated as a result of the sale of the Company's interest. In addition, the
Company entered into a settlement agreement and release with Finet.com whereby
both parties are effectively released from the licensing agreement. The Company
received total cash payments of $753,000, which was recorded as $410,000 in
revenue associated with click-throughs provided and $343,000 for a refund of the
unamortized portion of purchased technology acquired from Finet.com during
fiscal 1999.
COMMON STOCK, RELATED PARTY
The Company owns common stock of Webquest, Inc., a company considered a
related party as an officer and two members of the Company's Board of Directors
are also on the Webquest board.
Prior to fiscal 1999, the Company had received 700,000 shares of Webquest
common stock in lieu of cash payment for the license of technology, and the
associated revenue had been deferred due to collectibility issues. During the
year ended June 30, 1999, the Company sold 400,000 shares of the stock to an
unaffiliated party for $600,000. Since the revenues earned by the Company had
been deferred, the sale of stock enabled the Company to recognize $400,000 in
deferred revenue and a gain on sale of $200,000. Additionally, the Company
acquired an additional 100,000 shares of the common stock as consideration for
selling certain technology which had previously been licensed to Webquest.
Additionally, the Company recorded other comprehensive income during fiscal year
1999 of $700,000 to reverse the write down of the investment that had been
recorded at June 30, 1998.
F-17
<PAGE>
HOMESEEKERS.COM, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 AND 1999
NOTE 4--INVESTMENTS (CONTINUED)
During fiscal year 2000, the Company received an additional 400,000 shares
of Webquest common stock in payment of notes and accounts receivable due and as
consideration for the termination of certain operating agreements. At various
dates during fiscal year 2000, the Company sold 54,300 shares of the common
stock recognizing a gain on sale included in other income of approximately
$46,000.
During the years ended June 30, 2000 and 1999, the Company recorded revenues
from the above related party of $370,000 and $501,355, respectively, related to
the technology licensing and custom programming fees.
INVESTMENT IN NON-PUBLIC COMPANY-RELATED PARTY
The Company owns common stock of BuySellBid.com, a company considered a
related party as a Company officer and member of the Board of Directors is also
on the BuySellBid.com board.
During the year ended June 30, 2000, the Company entered into certain
agreements with BuySellBid.com, an unrelated non-public company. These
agreements consisted of an exclusive provider arrangement where the Company
provides all of BuySellBid.com's real estate information, and certain
advertising contracts whereby the Company and BuySellBid.com provide banner
advertising on their respective websites. As a result of these agreements, the
Company received a total of 2,000,000 shares of BuySellBid.com common stock in
exchange for 507,615 shares of the Company's common stock and a $1,000,000 cash
payment. Valuation of the common stock acquired was based on the offering price
of shares being sold in a private placement offering at the time the agreements
were entered into, resulting in a total value of $5,000,000 for BuySellBid.com
common stock. The advertising agreements were being amortized to revenue and
expenses over their respective terms (see Note 14). At June 30, 2000, the
Company has reserved $2,500,000 of the value of the investment due to the
impairment resulting from continuing losses of BuySellBid.com and the
uncertainties of recovery.
NOTE 5--INVESTMENT IN FOREIGN AFFILIATE
In May 2000, the Company completed an agreement to acquire an equity
interest in, and enter into an operating agreement with the property portal!
Limited, a Hong Kong company that operates an Asian Internet real estate portal
("pp.com").
In the transaction, the Company issued 1,638,750 of its common shares,
valued at approximately $6,452,000, in exchange for 1,613,000 shares of pp.com,
representing approximately a 23% ownership of pp.com. In addition, the Company
issued to the stockholders of pp.com fully vested warrants to purchase an
aggregate of 1,000,000 shares of the Company's common stock at $7 per share. The
warrants are exercisable for one year after the date of issue. The estimated
fair value of the warrants, $1,270,000, was recorded as a component of the
investment in pp.com, and valued using the Black-Scholes valuation method using
a volatility of 1.226.
The operating agreement is a technology consulting and license agreement
whereby the Company granted a license to its products for sales in the territory
of the People's Republic of China (including Hong Kong and Taiwan), Malaysia,
Singapore and Thailand. Pursuant to the agreement, the Company is to be paid an
initial fee of $1,800,000. The Company received $200,000 in May 2000 and is to
receive $1,600,000 following the completion of a defined trial period. After the
first anniversary date of the agreement, pp.com is to pay the Company a royalty
equal to 14% of all revenue derived from the
F-18
<PAGE>
HOMESEEKERS.COM, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 AND 1999
NOTE 5--INVESTMENT IN FOREIGN AFFILIATE (CONTINUED)
commercial use by pp.com of any services or technology provided by the Company.
The agreement is for a period of ten years, subject to earlier termination by
the parties under certain terms of the agreement.
The investment in pp.com is accounted for using the equity method of
accounting, with inter-company accounts and transactions eliminated. The
Company's equity in the net loss of pp.com for period May 16 to June 30, 2000
was $81,308, which was included in other income (loss). The excess of the
Company's cost of the investment over the Company's equity in the net assets of
pp.com is being amortized over a period of three years. Amortization expense for
the year ended June 30, 2000 was $310,988. Payments received from pp.com under
the operating agreement will be applied as a reduction of the investment until
such time as the investment is fully recovered, then recognized as other income
thereafter.
Summarized financial information for pp.com as of June 30, 2000 and for the
year then ended is as follows:
<TABLE>
<S> <C>
Balance sheet information
Current assets............................................ $ 1,322,124
Noncurrent assets......................................... 1,069,469
Current liabilities....................................... (810,804)
Noncurrent liabilities.................................... (12,219)
-----------
Net assets................................................ $ 1,568,570
===========
Statement of operations information
Revenues.................................................. $ 54,830
===========
Net loss.................................................. $(2,858,667)
===========
HomeSeekers.com Incorporated share of pp.com's net assets... $ 364,222
===========
</TABLE>
NOTE 6--PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at June 30:
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Computer equipment....................................... $3,132,682 $1,315,823
Computer software........................................ 2,173,503 210,001
Furniture and office equipment........................... 629,768 296,123
Leasehold improvements................................... 300,367 156,447
Vehicles................................................. 55,000 55,000
---------- ----------
6,291,320 2,033,394
Less: accumulated depreciation and amortization.......... (2,128,518) (863,717)
---------- ----------
$4,162,802 $1,169,677
========== ==========
</TABLE>
Depreciation expense for the fiscal years ended June 30, 2000 and 1999
amounted to $1,202,324 and $281,789, respectively. The Company has computer
equipment and software with a net book value of $148,550 and $46,862,
respectively (accumulated depreciation of $102,669 and $76,295, respectively)
under capital leases at June 30, 2000 and 1999.
F-19
<PAGE>
HOMESEEKERS.COM, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 AND 1999
NOTE 7--PURCHASED INTANGIBLE ASSETS
Purchased intangible assets consist of the following at June 30:
<TABLE>
<CAPTION>
AMORTIZATION
PERIOD 2000 1999
------------ ----------- ----------
<S> <C> <C> <C>
Acquired technology.................... 3 years $10,582,655 $ 450,000
Cost in excess of net assets of
acquired businesses.................. 3-15 years 8,963,592 2,193,844
Covenants not to compete............... 3 years 1,289,632 --
Customer lists......................... 3 years 1,478,806 335,000
Exclusive provider agreements.......... 3 years 1,841,380 --
Other.................................. 1-2 years 525,276 --
----------- ----------
24,681,341 2,978,844
Less accumulated amortization.......... (4,150,489) (602,228)
----------- ----------
$20,530,852 $2,376,616
=========== ==========
</TABLE>
Amortization expense was $3,799,870 and $241,025 for the years ended
June 30, 2000 and 1999, respectively.
During the fourth quarter of the year ended June 30, 2000, the Company
evaluated certain of its purchased technology and elected to decrease the
amortization period from 5 to 3 years resulting in additional amortization
expense of $298,000. In accordance with APB 20, this change in accounting
estimate was accounted for by adjusting amortization in the fourth quarter and
future periods.
NOTE 8--LONG-TERM DEBT
Long-term debt at June 30, 2000 and 1999 consisted of the following:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Notes payable to unrelated parties, with interest rates from
5.7% to 9.5%, collateralized by personal guarantees of
certain employees and stockholders of the Company......... $ 91,970 $ --
Note payable to related party, with interest at 12%,
unsecured, no specific repayment terms,................... -- 13,000
Capital lease obligations (Note 11)......................... 159,575 75,338
-------- --------
Total....................................................... 251,545 88,338
Less current portion........................................ (98,324) (38,752)
-------- --------
Long-term portion........................................... $153,221 $ 49,586
======== ========
</TABLE>
Future maturities of long-term debt at June 30, 2000 are as follows:
<TABLE>
<CAPTION>
Year ending June 30:
<S> <C>
2001...................................................... $ 98,324
2002...................................................... 78,985
2003...................................................... 45,796
2004...................................................... 14,900
2005...................................................... 13,540
--------
Total..................................................... $251,545
========
</TABLE>
F-20
<PAGE>
HOMESEEKERS.COM, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 AND 1999
NOTE 8--LONG-TERM DEBT (CONTINUED)
During the year ended June 30, 1999, convertible debt in the amount of
$141,000 was exchanged for the Company's common stock at the rate of one share
of the Company's common stock for each $2 of indebtedness. As of June 30, 1999,
all of the convertible debt had either been repaid or converted into common
stock.
The interest rate on capitalized leases varies from 12.0% to 32.1% and is
imputed based on the lessor's implicit rate of return.
NOTE 9--STOCKHOLDERS' EQUITY
On July 15, 1997, the Company amended its articles of incorporation
regarding authorized shares. The Company is authorized to issue 50,000,000
shares of common stock, par value $.001 per share, 5,000,000 shares of Series A
preferred stock, par value $.001 per share, 200,000 shares of Series B preferred
stock, par value $10.00 per share, and 4,800,000 shares of undesignated
preferred stock, par value $.001 per share. On the same date, the Company filed
a Certificate of Designation creating a class of 400,000 shares of Series C
preferred stock, par value $.001 per share.
COMMON STOCK
As of June 30, 2000, the Company has reserved a total of 9,625,534 shares of
common stock pursuant to outstanding warrants and options. Warrants to purchase
1,026,039 and 1,082,845 common shares were exercised during fiscal 2000 and 1999
at prices averaging $2.96 and $2.85 per share. Options to purchase 677,497 and
149,376 common shares were exercised during fiscal 2000 and 1999 at an average
price of $2.21 and $1.56 per share.
COMMON STOCK WARRANTS
Warrants for the purchase of common shares that were issued and outstanding
as of June 30, 2000 are summarized below:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
WARRANTS PRICE EXPIRATION
--------- ----------- ----------
<S> <C> <C>
100,000 $ 1.47 2001-2002
506,377 2.00-2.95 2001-2004
252,611 3.00-3.50 2001-2004
403,100 4.00-4.56 2001-2003
150,000 5.50 2002
50,000 6.06 2002
1,000,000 7.00 2003
95,000 10.19-10.81 2002-2003
---------
2,557,088
=========
</TABLE>
During fiscal 2000, a total of 1,809,877 warrants expiring on various dates
in 2000 through 2004 to purchase common shares at exercise prices of $2.38 to
$10.81 were issued to consultants and investors. During fiscal 1999, a total of
1,154,708 warrants expiring on various dates in 1999 through 2004 to purchase
common shares at exercise prices of $2.00 to $6.25 were issued to consultants
and investors.
F-21
<PAGE>
HOMESEEKERS.COM, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 AND 1999
NOTE 9--STOCKHOLDERS' EQUITY (CONTINUED)
CONVERTIBLE PREFERRED STOCK
SERIES A
Series A convertible preferred stock has a par value of $.001 and is
entitled to a cumulative dividend, when declared, of 15% per annum based upon a
value of $2 per share. At the option of the board of directors, each share of
stock can be redeemed at $2 per share, or, at the option of the shareholder,
each share of stock can be converted to common stock at a rate of two shares of
common stock for each share of preferred. Upon conversion to common stock,
accumulated dividends shall be paid through the issuance of additional common
shares or the payment of cash at the option of the board of directors. Each
share of series A convertible preferred stock is entitled to the voting rights
of five shares of common stock. During the year ended June 30, 1999, all 692,000
outstanding shares of Series A convertible preferred stock and the related
dividends were converted into common stock.
SERIES B
Series B convertible preferred stock has a par value of $10.00 and is
entitled to a cumulative dividend, when declared, of 9% per annum based upon a
value of $10 per share. At the option of the board of directors, each share of
stock can be redeemed at $10 per share or can be converted to common stock at a
rate of five shares of common stock for each share of preferred. Conversion to
common stock cannot occur until at least six months after issuance and if the
listed price of the Company's common stock has been at least $3 for at least ten
consecutive trading days with an aggregate volume of no less than 20,000 shares.
Upon redemption or conversion to common stock, accumulated dividends shall be
paid. Each share of Series B convertible preferred stock is not entitled to the
voting rights of common stock.
SERIES C
Series C convertible preferred stock has a par value of $.001 and is
entitled to a cumulative dividend, payable annually in arrears, of 6% per annum
based upon a value of $10 per share. Each share of Series C convertible
preferred stock may be converted into common stock at the higher price of $3.00
per share or at a price per share equal to 75% of the average of the closing bid
prices of the common stock of the Company for the five trading days preceding
the closing of the Company's private offering of Series C convertible preferred
stock. Each share of Series C convertible preferred stock is not entitled to the
voting rights of common stock.
At June 30, 2000 and 1999, there were no outstanding shares of Series A,
Series B or Series C convertible preferred stock. Additionally, in September
2000, the board of directors authorized a first amended Certificate of
Designation to reclassify all previously designated series of preferred stock.
Accordingly, the Company currently has 5,000,000 authorized shares of Class A
preferred stock, par value $.001 per share, of which 5,000 shares have been
designated as Class A Series 1, and 200,000 authorized shares of Class B
preferred stock, par value $10.00 per share.
F-22
<PAGE>
HOMESEEKERS.COM, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 AND 1999
NOTE 9--STOCKHOLDERS' EQUITY (CONTINUED)
DIVIDENDS
Due to the conversion of 692,000 shares of Series A convertible preferred
stock to common stock in fiscal 1999, the Company paid dividends in arrears on
the converted shares at an average rate of $0.86 per share. The dividends were
paid by the issuance of 108,432 shares of common stock.
At June 30, 1999, all dividends in arrears on the convertible preferred
stock were paid in full.
NOTE 10--1996 STOCK OPTION PLAN
On October 9, 1996, the Company's Board of Directors ratified a stock option
plan under which the Company may grant qualified and non-qualified incentive
stock options to employees, directors, and consultants. As part of the
provisions of the plan, the Company may grant, but is not obligated to grant,
options that include reload features.
Options granted generally have terms from one to five years from the date of
grant and generally vest immediately or ratably over their terms. The exercise
price of incentive stock options granted under the plan may not be less than
100% of the fair market value of the Company's common stock on the date of the
grant. For a person who at the time of the grant owns stock representing 10% of
the voting power of all classes of the Company's stock, the exercise price of
the incentive stock options granted under the plan may not be less than 110% of
the fair market value of the common stock on the date of the grant. During
fiscal year 1999, the Company amended and restated the 1996 Stock Option Plan to
allow employees 90 days after separation from the Company to exercise all vested
options. In addition, during fiscal year 2000, the stockholders approved an
amendment to increase the authorized shares under the plan from 5,500,000 shares
to 11,500,000 shares.
The Company applies APB Opinion 25 in accounting for its fixed stock option
plan. Accordingly, since the market value and the option price of the Company's
stock were equal on the measurement date, no compensation cost has been
recognized for the plan in 2000 and 1999. Had compensation cost been determined
on the basis of fair value pursuant to FASB Statement No. 123, net loss and
earnings per share would have been impacted as follows:
(Amounts in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Net Loss
As reported............................................ $(25,034) $(4,842)
======== =======
Pro forma.............................................. $(28,280) $(7,165)
======== =======
Basic and Diluted Loss Per Share
As reported............................................ $ (1.47) $ (.53)
======== =======
Pro forma.............................................. $ (1.66) $ (.70)
======== =======
</TABLE>
F-23
<PAGE>
HOMESEEKERS.COM, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 AND 1999
NOTE 10--1996 STOCK OPTION PLAN (CONTINUED)
The pro forma amounts were estimated using the Black-Scholes option-pricing
model with the following assumptions for fiscal 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Dividend Yield....................................... 0% 0%
Risk-Free Interest Rate.............................. 5.5-6.9% 5.5%
Expected Life........................................ 3-7 years 3-8 years
Expected Volatility.................................. 121.10% 108.40%
</TABLE>
Expected lives are equal to the remaining option terms for both years,
dividend yields are 0% since the Company does not intend to pay dividends on its
common stock in the near term.
F-24
<PAGE>
HOMESEEKERS.COM, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 AND 1999
NOTE 10--1996 STOCK OPTION PLAN (CONTINUED)
Following is a summary of the status of options outstanding during the years
ended June 30:
<TABLE>
<CAPTION>
2000 1999
------------------------------------- ---------------------------------
WEIGHTED NUMBER WEIGHTED
NUMBER OF EXERCISE AVERAGE OF SHARES EXERCISE AVERAGE
SHARES UNDER PRICE EXERCISE UNDER PRICE EXERCISE
OPTIONS RANGE PRICE OPTION RANGE PRICE
------------ ----------- -------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at July 1............... 4,082,874 $ 1.47-9.97 $2.58 3,609,200 $1.47-6.50 $1.76
Granted............................. 4,310,038 2.31-22.50 7.14 1,266,250 1.47-9.97 4.90
Canceled............................ (646,969) 1.47-21.13 9.62 (643,200) 1.47-6.50 3.00
Exercised........................... (677,497) 1.47-9.44 2.21 (149,376) 1.47-3.62 1.56
--------- ---------
Outstanding at June 30.............. 7,068,446 $1.47-22.50 4.95 4,082,874 1.47-9.97 2.58
========= =========
Options exercisable at June 30...... 3,179,159 $2.54 3,617,749 $1.98
========= =========
</TABLE>
The weighted average grant date fair value of options granted during 2000 and
1999 was $5.57 and $1.32, respectively.
The following table summarizes information regarding stock options
outstanding at June 30, 2000:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
EXERCISE OUTSTANDING CONTRACTUAL AVERAGE EXERCISABLE AVERAGE
PRICE RANGE OPTIONS LIFE (IN YEARS) EXERCISE PRICE OPTIONS EXERCISE PRICE
----------- ----------- --------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$1.47....... 2,040,958 2.16 $ 1.47 2,040,958 $ 1.47
2.00-2.97.. 2,352,654 3.94 2.00-2.97 600,159 2.00-2.97
3.00-4.37.. 109,000 5.80 3.00-4.37 2,500 3.00-4.37
4.50-6.56.. 788,936 3.82 4.00-6.56 339,248 4.00-6.56
6.75-10.00.. 801,148 5.12 6.75-10.00 162,503 6.75-10.00
10.13-14.94.. 723,000 5.49 10.13-14.94 26,417 10.13-14.94
15.25-22.50.. 252,750 5.76 15.25-22.50 7,374 15.25-22.50
--------- ---------
7,068,446 3,179,159
========= =========
</TABLE>
F-25
<PAGE>
HOMESEEKERS.COM, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 AND 1999
NOTE 11--COMMITMENTS AND CONTINGENCIES
LEASES
The Company has property and equipment under capital leases with maturity
dates from November 2000 to March 2003. Certain of the leases are secured by the
personal guarantee of a shareholder. In addition, the Company leases its
facilities under various non-cancelable operating leases. Several facility
leases include an escalation clause based on the consumer price index and are
adjusted on an annual basis. The Company also has service agreements with
Internet access providers. Future minimum payments under all capital and
operating leases as of June 30, 2000 are as follows:
<TABLE>
<S> <C> <C>
YEARS ENDING OPERATING CAPITAL
JUNE 30: LEASES LEASES
--------------------------------------- ---------- ----------
2001 $826,850 $ 96,805
2002 808,549 63,836
2003 720,283 29,852
2004 680,754 --
2005 312,100 --
Thereafter 335,520 --
---------- ----------
</TABLE>
<TABLE>
<S> <C> <C>
Total minimum lease payments $3,684,056 190,493
==========
Less: amount representing interest (30,918)
----------
Present value of future minimum lease payments
159,575
Less: current portion 76,751
----------
Long-term portion $ 82,824
==========
</TABLE>
Rental expense for all operating leases was $559,370 and $136,283 for the
years ended June 30, 2000 and 1999, respectively.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with four executive officers for
periods ranging from three to five years. The agreements call for annual
salaries of $144,000 to $200,000, plus bonuses as determined by the Board of
Directors or based on defined income before taxes. In the event of a change in
control of the Company, as defined, and employment termination, the officers are
entitled to payments up to five times the sum of the highest annual salary and
bonuses received during the term of employment.
The Company also has employment agreements with other employees calling for
annual salaries, bonuses and the grant of stock options. Certain of the
agreements were negotiated in connection with business acquisitions.
F-26
<PAGE>
HOMESEEKERS.COM, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 AND 1999
NOTE 11--COMMITMENTS AND CONTINGENCIES (CONTINUED)
LEGAL PROCEEDINGS
In April 2000, a former employee filed a claim against the Company in
Douglas County, Nevada District Court. The claim related to alleged breaches by
the Company of the employee's employment agreement with the Company. The claim
sought the payment of certain compensation, benefits and compensatory and
punitive damages in excess of $1.2 million. On August 21, 2000, the claims of
all parties were dismissed with prejudice pursuant to a stipulation of the
parties. The Company made a payment to the employee of $150,000 in connection
with the settlement.
The Company is subject to legal proceedings and claims arising in the
ordinary course of business. Although occasional adverse decisions or
settlements may occur, management believes that the final disposition of such
matters will not have a material adverse effect on the Company's business,
financial position or results of operations.
NOTE 12--INCOME TAXES
Deferred taxes result from temporary differences in the recognition of
certain revenue and expense items for income tax and financial reporting
purposes. The significant components of the Company's deferred taxes were as
follows as of June 30:
<TABLE>
<CAPTION>
2000 1999
----------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryover...................... $ 9,537,214 $3,647,740
Deferred revenue.................................. 1,708,142 1,059,322
Amortization of goodwill.......................... 472,409 118,812
Accrued expenses and other........................ 84,720 43,226
----------- ----------
11,802,485 4,869,100
Deferred tax liabilities:
Depreciation...................................... (65,790) (30,931)
----------- ----------
11,736,695 4,838,169
Less: Valuation allowance........................... (11,736,695) (4,838,169)
----------- ----------
Net deferred taxes................................ $ -- $ --
=========== ==========
</TABLE>
A valuation allowance has been established due to the Company's accumulated
losses. The increase in the valuation allowance was $6,898,526 and $1,664,923
for the years ended June 30, 2000 and 1999, respectively. In addition, the
Company has available at June 30, 2000, approximately $28,000,000 of unused
operating loss carry forwards that may be applied against future taxable income
and that expire in various years from 2008 to 2020. The utilization of these
loss carryforwards may be limited by certain events including an ownership
change as defined by the Internal Revenue Code.
Deferred tax assets relating to net operating loss carryforwards as of
June 30, 2000 include approximately $1,190,000 associated with stock option
activity for which subsequent recognized tax benefits, if any, will be credited
directly to shareholders' equity.
F-27
<PAGE>
HOMESEEKERS.COM, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 AND 1999
NOTE 12--INCOME TAXES (CONTINUED)
The principal reasons for the difference between the effective income tax
rate and the federal statutory income tax rate are as follows:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Federal benefit expected at statutory rate......... $(8,511,560) $(1,694,701)
Valuation allowance................................ 6,898,526 1,609,094
Write-down of investment........................... 850,000 --
Goodwill amortization.............................. 739,862 55,794
Non-deductible expenses............................ 23,172 29,813
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
NOTE 13--SUBSEQUENT EVENTS
On July 21, 2000, the Company completed the acquisition of Immediate Results
Through Intuitive Systems, LLC, a provider of productivity software to real
estate professionals. The Company paid $25,000 cash and issued 500,000 shares of
the Company's common stock valued at $1,250,000. The purchase agreement provides
for additional consideration of up to 2,900,000 shares of the Company's common
stock on specified dates within the first year of the agreement. The value of
the shares issued and issuable need not exceed $8,975,000.
During the period July 1 through September 5, 2000, the Company sold
1,488,334 shares of the Company's common stock to institutional investors at
prices ranging from $2.50 to $3.00 per share, resulting in cash proceeds to the
Company of approximately $3,638,000.
During the period July 1 through September 5, 2000, the Company issued
warrants to directors and investors to purchase a total of 769,250 common shares
of the Company at prices ranging from $1.50 to $3.00 per share.
During the period July 1 through August 4, 2000, the Company granted options
to employees to purchase a total of 1,254,468 common shares of the Company at
prices ranging from $2.03 to $3.00 per share.
NOTE 14--QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
RESTATEMENT OF UNAUDITED QUARTERLY FINANCIAL RESULTS
As described in Note 4 to the consolidated financial statements, the Company
entered into various agreements with BuySellBid.com, a related company, which
included the purchase and sale of advertising on their respective websites.
Subsequent to the issuance of the Company's financial results for the second and
third quarters in fiscal year 2000, it was determined that these advertising
arrangements should be treated as a non-monetary exchange resulting in
advertising revenue being netted with advertising expenses, instead of being
reported as revenue.
The Company has also reevaluated the recognition of revenue in connection
with two separate advertising and marketing agreements in which it has received
$1,050,000 as of June 30, 2000, and for which it reported revenue of
approximately $676,000 in the third quarter. The Company has elected to
F-28
<PAGE>
HOMESEEKERS.COM, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 AND 1999
NOTE 14--QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
defer and recognize the amounts received over the three and five year
contractual terms of the arrangements.
Summarized unaudited quarterly financial information for the years 2000 and
1999 are noted below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
2ND QUARTER 2ND QUARTER 3RD QUARTER 3RD QUARTER
1ST QUARTER AS REPORTED RESTATED AS REPORTED RESTATED 4TH QUARTER
----------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Fiscal year 2000
Revenues..................... $1,443 $2,712 $2,574 $4,312 $3,396 $ 3,677
Loss from operations......... $2,751 $5,119 $4,923 $5,203 $5,786 $12,052
Net loss..................... $2,638 $4,983 $4,787 $5,101 $5,684 $11,925
Basic and diluted net loss
per share.................. $ 0.17 $ 0.30 $ 0.28 $ 0.29 $ 0.32 $ 0.70
</TABLE>
The above restatements do not affect previously reported net cash flows for
the quarterly periods.
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Fiscal year 1999
Revenues...................................... $ 375 $1,068 $1,130 $ 846
Loss from operations.......................... $ 957 $ 597 $ 993 $2,612
Net loss...................................... $ 963 $ 587 $ 726 $2,566
Basic and diluted net loss per share.......... $0.14 $ 0.08 $ 0.11 $ 0.20
</TABLE>
F-29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment to the
Registrant's Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
<TABLE>
<S> <C> <C>
HOMESEEKERS.COM, INCORPORATED
Date: October 30, 2000 By: /s/ GREGORY L. COSTLEY
-----------------------------------------
Gregory L. Costley, Chairman of the Board,
Chief Executive Officer, Secretary and
Treasurer
</TABLE>
Pursuant to the requirements of Securities Exchange Act of 1934, this Report
to be signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
<TABLE>
<S> <C>
/s/ GREGORY L. COSTLEY
------------------------------------------------------------
Date: October 30, 2000 Gregory L. Costley, Chairman of the Board, Chief Executive
Officer, Secretary and Treasurer (Principal Executive
Officer)
/s/ DENNIS P. GAUGER
------------------------------------------------------------
Date: October 30, 2000 Dennis P. Gauger, Chief Financial Officer (Principal
Accounting
Officer and Principal Financial Officer)
/s/ JOHN GIAIMO
Date: October 30, 2000 ------------------------------------------------------------
John Giaimo, President, Chief Operating Officer and Director
*
------------------------------------------------------------
Date: October 30, 2000 Greg Johnson, Executive Vice President, Chief Technology
Officer and Director
*
Date: October 30, 2000 ------------------------------------------------------------
David Holmes, Director
*
Date: October 30, 2000 ------------------------------------------------------------
Bradley N. Rotter, Director
</TABLE>
* The undersigned by signing his name hereunto has hereby signed this Amendment
No. 1 to Form 10-KSB on behalf of the above-named directors, on October 30,
2000, pursuant to a power of attorney executed on behalf of each such
director and filed with the Securities and Exchange Commission.
<TABLE>
<S> <C> <C>
/s/ GREGORY L. COSTLEY
-------------------------------------------
By: Gregory L. Costley
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
--------------------- -------------------
<C> <S>
3.1@ Articles of Incorporation of the Company (incorporated by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-3, as amended (Commission 333-32586), as
originally filed with the Securities and Exchange Commission
(the "Commission") on March 15, 2000 (the "S-3")).
3.2@ Amended and Restated Bylaws of HomeSeekers.com, Incorporated
(incorporated by reference to Exhibit 3.1 to the Company's
Current Report on Form 8-K, as filed with the Commission on
May 23, 2000).
4.1@ Form of Common Stock Warrant (incorporated by reference to
Exhibit 2 to the property portal!, Limited's Schedule 13D
(Commission File No. 005-55337), as filed with the
Commission on May 26, 2000).
4.2@ Form of Common Stock Warrant (incorporated by reference to
Exhibit 4.3 to the Form S-3).
10.1@ Exclusive Provider and Advertising Agreement, dated as of
September 30, 1999, between the Company and BuySellBid.com,
Inc. (incorporated by reference to Exhibit 10.1 to the
Company 10-QSB (Commission File No. 000-23835) for the
period ended September 30, 1999).
10.2@ Amended and Restated 1996 Stock Option Plan (incorporated by
reference to Exhibit 6.1 to the Company's 10-KSB (Commission
File No. 000-23825) for the year ended June 30, 1999 (the
"1999 10-KSB")).
10.3*@ Amendment No. 1 to HomeSeekers.com, Incorporated Amended and
Restated 1996 Stock Option Plan (incorporated by reference
to Exhibit 4.1 to the Company' Registration Statement on
Form S-8 (Commission File No. 333-44786), as filed with the
Commission on August 30, 2000).
10.4*@ Employment Agreement between us and John Giaimo dated March
9, 1999 (incorporated by reference to Exhibit 6.6 to the
1999 10-KSB).
10.5*@ Employment Agreement between us and Greg Johnson dated March
9, 1999 (incorporated by reference to Exhibit 6.7 to the
1999 10-KSB).
10.6*@ Employment Agreement between us and Doug Swanson dated March
9, 1999 (incorporated by reference to Exhibit 6.8 to the
1999 10-KSB).
10.7*@ Employment Agreement between us and Greg Costley dated
August 23, 1999 (incorporated by reference to Exhibit 6.11
to the 1999 10-KSB).
16.1@ Letter on Change in Certifying Accountant.
21.1@ Subsidiaries of Registrant.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Albright, Persing & Associates, Ltd.
24.1@ Powers of Attorney (contained in the signature page of this
Form 10-KSB).
27.1@ Financial Data Schedule.
</TABLE>
------------------------
* Management contract or compensatory arrangement.
@ Previously filed.
